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Disciplinary Demotions Can Be a Risky Proposition

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.

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Employers often search for ways to get the attention of wayward employees when traditional disciplinary approaches such as counseling and written warnings fail.Disciplinary demotion is one such option.

According to a recent Society for Human Resource Management (SHRM) poll, poor performance is the leading reason employers carry out demotions. Seventy-one percent of respondents had demoted workers for performance reasons in the previous 24 months. Another 37 percent said conduct issues were another cause for demotions.

But employers report varied levels of success with disciplinary demotions.

Involuntary disciplinary demotions are often unsuccessful because they are so visible, and the typical company grapevine is so active, according to Dawn Adams, PHR, an independent consultant with HResults. She says voluntary demotions, where an employee realizes that they are in over their head, are much more successful.

SHRM’s poll results indicate that this type of demotion is common, with 41 percent of respondents reporting they had demoted employees at the employee’s request.

Correcting Fit or Other Issues

Systemic problems with the hiring process can be one reason for disciplinary actions such as demotions. Karri Perez, Ph.D., SPHR, GPHR, president of EPS Resource Group, encourages employers that find that they are often dealing with person/job fit problems not only to handle it on an individual level but also to address problems with the recruiting and selection methods.

Adams agrees, saying employers that realize their responsibility for a poor job fit might be offering the best option when electing to demote rather than terminate.

But disciplinary demotions work best, according to Christopher McHale, executive vice president for HR Essentials, when an employee who perceives himself or herself as invincible is exhibiting a correctable behavior. For example, an employee with valuable technical skills might disregard disciplinary warnings about attendance because they believe that the employer would never consider termination. Demotion enables the employer to retain that talent while emphasizing the importance of attendance.

Further, this type of demotion communicates to other employees that the employer will not simply look the other way. Once the behavior is corrected, an employee might be considered for promotion into the former position.

But issues such as bad attitude and disruptive behavior usually aren’t correctable with a demotion, McHale says, because there is no incentive for improvement. Termination is still likely.

Less Risky Option

In McHale’s experience, employers end up with more legal problems from demotions than from terminations. He finds that terminated workers often move on and shrug off the embarrassment and disappointment. But demoted employees stay in the same environment and have a constant reminder of the experience.

Yet managers might select demotion over termination because they know that they have not documented problems with employees sufficiently, says Ken Pinnock, SPHR, GPHR, HR director for Mountain States Employer Council, Inc. In this case, they might believe that termination could lead to a lawsuit while demotion won’t. But this is not the case, Pinnock says. That’s why he recommends that demotions be documented just as thoroughly as terminations.

Adams says terminations might be less risky than demotions because with a termination a severance package might be offered in exchange for a signed release and outplacement assistance might be offered. These offerings reduce not only the employee’s legal leverage in a complaint or lawsuit but also the motivation to initiate a complaint or lawsuit.

Paving the Way

When employers elect demotions, there are several things they can do to make the transition easier. Perez finds that an employee’s first concern when demoted is their pay. If it is acceptable within the pay structure, the employer can keep the employee’s pay the same. This is likely to affect the workers’ future earnings potential, but the effect on the employee’s personal finances will be gradual.

When it is not possible to keep the pay the same, Pinnock says, employers should provide a transition period before the pay reduction commences.

In addition, an employer might find that demotions are more successful if they help the employee save face. According to Perez, “Employers can be preemptive about this. In orientation, explain that the company encourages risk-taking and that, as a result, the employer understands that sometimes risks don’t turn out well. Taking a risk and failing shouldn’t negatively reflect on the employee.”

Nonetheless, the embarrassment can be a big barrier to an employee’s success in a lower position. Adams emphasizes the impact communication can have. The employer must be proactive and make its statement before the grapevine takes over and distorts matters. Employees can see through lies, she says. While it’s important to protect the demoted worker’s privacy, she says, outright insincerity will be recognized and can create distrust and rumors.

Pinnock says that the communications piece begins long before the demotion occurs. It’s important for demoted employees to understand that they have been given a shot and treated fairly. This means that employers must be communicating consistently and clearly with the worker about the issues that are affecting their work. When it comes to communicating to co-workers, Pinnock recommends acknowledging the change but not going into details.

A final consideration for employers is anticipating the risk of sabotage or retaliation from the demoted worker. Often, workers are demoted from supervisory positions, experts say, and they find themselves reporting to their replacement. Resentment over the demotion can motivate the employee to sabotage the new manager’s success.

McHale says the employer can increase monitoring of the worker or place the worker in a situation where sabotage would not have a great impact on the company. However, this might be a waste of resources and create a negative atmosphere.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.